Acquisition of Real Estate in Cyprus

Cyprus can easily be regarded as one of the most popular destinations for people who wish to purchase a holiday house, apartments, plots of land or any other kind of immovable property. It must be remembered that when we talk about Cyprus, we are for the purposes of this feature only talking about the south. The country has been divided politically since, in Greek eyes, the Turks invaded and took control of the northern third of the island in 1974, and to all intents and purposes the island has remained two distinct countries ever since. Whilst moves are afoot towards a political settlement, and restrictions on movement and trade over the demarcation line have recently been lifted following Cyprus' entry into the European Union, it is uncertain when the island will become fully integrated.

The political situation however, should in no way act as a deterrent to potential investors in the South. In fact, the country has been rapidly growing in popularity for property investors and this has been borne out by steadily rising prices. So what do you get for your money? About 130,000 Cyprus Pounds (EUR224,000, USD278,000, GBP154,000) will buy you a detached three bedroom dwelling, although expect to pay more to get near the beach. In the north, the equivalent property can be picked up for around CYP90,000, and prices here are rising fast, albeit from a low base. However, there are significant risks attached to buying in the North which will be explained later.

For the acquisition of property by a non-Cypriot, a particular application is submitted to the District Officer in the district where the property is situated. The District Officer together with other relevant government departments will make further enquiries and prepare a report, which is submitted, to the Council of Ministers through the Minister of Interior.

The letter of approval or refusal may take up-to eight months or even longer, however it is very improbable for an application to be rejected, and such a case would only arise in the event of suspicion of the buyer for involvement in terrorism, drug trafficking, smuggling of weapons etc . However, there is no restriction in taking possession of the property in the meantime.

The permit has the following conditions and restrictions:

The transfer to be effected within a year from the date of the permit or within three years in case of constructions of a building on the property.

Title deeds of the property to be issued before the transfer.

Foreign individuals on personal basis according to the Acquisition of Immovable Property (Aliens) Law are allowed to acquire one of the following:
• apartment
• house
• building plot or land up to approximately three donums (4,014 square meters)

Nevertheless the situation is different with an I.B.C. which may also acquire premises for their business and for the residence of their foreign employees provided they maintain a fully fledged office.

Most importantly though, a Cyprus company if theoretically owned by Cyprus citizens would have no restrictions as to the properties it could acquire or register on its name, so it is in most case advisable for non- Cypriots to follow this path when wishing to purchase more than one piece of property.

In these cases the relevant authorities will grant approval for the acquisition by a foreigner of a larger area of land, if the land is to be used for tourist development (e.g. Hotel or Hotel Complex), especially if the intended project is in an area where the Government wishes to promote tourism. A similar stand is taken for certain industrial sectors. Whilst there are no hard and fast rules governing the purchase method of property in Cyprus, one will typically buy through an agent or developer, or a partnership of both. Agents typically charge the buyer a commission of 5%, although an extra 3% may be charged if a developer is also involved. However, fees have become more negotiable as the market has tended to cool in recent months. There is nothing to stop a buyer dealing directly with a seller, but this is not recommended as the land registry system is somewhat bureaucratic and best tackled by a professional representative.

Obtaining finance for a property purchased in Cyprus is relatively straightforward, and thanks to the country's British connections, most bank staff speak reasonably fluent English. Typically, Cypriot banks will lend between 60% and 80% of the value of the property with the term usually fixed at seven to ten years, although longer repayment periods can be negotiated. As things stand, it would be very difficult to obtain a Cyprus mortgage from a non-Cyprus bank. The country's accession to the EU means in theory that any restrictions on capital transfers or interest rates should no longer apply. In practice however, it is taking longer than expected for the domestic banking industry to fully adjust to the new environment.

There are a number of taxes that are associated with the purchase of property in Cyprus. First, there is a Real Estate Transfer Tax. This is necessary to transfer the freehold into the name of the buyer and is levied on a progressive scale starting at 5% up to CYP10,000 increasing in five steps up to a maximum of 8% above CYP75,000. For residents there is an Immovable Property Tax based on the value of the property at a rate of 0.2% between CYP100,000 and CYP250,000; 0.3% up to CYP500,000; and 0.35% over CYP500,000. The first CYP100,000 is exempt. The buyer is also liable for stamp duty. This is charged at a rate of 0.15% on the first CYP100,000, and 0.2% above this threshold.

Depending on the size of the property, local authority taxes range from 0.1% to 0.5% per annum to cover refuse collection, sewerage, street lighting etc. When the time comes to sell, capital gains tax is charged on disposals of real property in Cyprus and shares in companies owning real property in Cyprus. The base date for calculating the acquisition cost of real property is 1st January, 1980 or later acquisition. The tax rate is 20% of the chargeable gain as adjusted for inflation unless the gain is already liable to corporation tax, but certain lifetime exemptions apply to individuals for the disposal of agricultural land and main residence. The first CYP10,000 of a gain is exempt. This exemption limit rises to CYP50,000 if the seller has lived in the property continuously for the previous five years. Further allowances are granted in relation to transfer fees, inflation and improvements made to the house, but the total exemption cannot exceed a CYP50,000 limit. Capital gains tax does not apply to profits from the sale of overseas real estate by residents who were not resident when they purchased the asset.